Ed Brown, Esq.
Those who understand asset protection know that the key to any effective plan requires one to act in a pre-emptive manner. The focus of any good plan is to have your assets positioned in a way that allows the assets to better weather the possibility of future threats against you and your net worth. Many people have accomplished this through the use of asset protection trusts or other similar vehicles. Like-minded people have also probably taken pre-emptive measures to avoid encounters with Coronavirus infections.
Litigation tends to rise during times of stressed economic conditions. This occurs when people, who have been negatively impacted by the fallout of these past few months, want to now find ways to enhance their own financial picture. Newfound plaintiffs lodge claims against anyone perceived to have assets of their own if the plaintiff can show a connection between the plaintiff’s worsened financial condition to any actions or inactions of others who are in a better financial position.
Hopefully the economy will fully recover soon, but there could well be long term effects that will continue to plague the economy for years to come. It may be a slow process of getting the world back to where it was financially as compared to pre-Covid 19. In the meantime, bankruptcies will be (and have already become) a more common occurrence. Heaven forbid that another significant wave of the virus were to spike.
The time to plan for asset protection is now while “the seas are relatively calm” with smooth sailing being anticipated, as opposed to waiting until the occurrence of any further events or aftermath from which newly-identified creditors arise.
If you are in a situation in which you yourself are considering bankruptcy, then you should note that certain ill-conceived “asset protection” planning within a year of a bankruptcy filing could lead to a denial of the discharge of any debts. In fact, any asset transfers within two years of filing for bankruptcy can be argued to be fraudulent transfers (and therefore unwound/reversed).
Simple steps can be taken however to be better positioned in the event claims or bankruptcies do become inevitable. For instance, any loans owed by your companies should be properly memorialized with a promissory note and any related collateral documents. If you already have an asset protection trust structure in place, the trustees should not be using those funds or assets for things that you could be using other unprotected moneys to pay.
U.S. real estate is one of the hardest assets to protect because it is physically located within the reach of US courts and cannot be moved elsewhere. This may be the time to sell such assets in exchange for assets more easily protected.
Another idea to consider is to make loans at today’s very low interest rates to a trust that is created and initially funded by one of your parents. Such trust can allow you to be the trustee (and therefore manage the trust) and beneficiary so that you can parlay the loaned funds into a new successful business venture, and as beneficiary, you can reap the rewards of such success. The fact that the trust is created by someone other than yourself can allow the trust’s assets to grow free from the reach of any creditors you encounter (as well as be free from any estate tax, which is slated to no longer have today’s generous exemption amounts after the year 2025). Bottom line, this may be the time to reconsider how your financial and estate matters are currently arranged and to plan ways to have such matters better situated.
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